SAT Allows PNB Housing Finance To Conduct E-Voting On Preferential Allotment

The Securities Appellate Tribunal has allowed PNB Housing Finance Ltd. to move ahead with its scheduled extraordinary general meeting on June 22. The company can put to vote the resolution to raise capital via preferential allotment but can’t declare the results, the appellate tribunal said on Monday.

On May 31, PNB Housing Finance had announced a preferential issue of shares to a group of investors led by Pluto Investments - an entity connected to private equity firm Carlyle Group.

The company informed the exchanges on June 19 it received a letter from the market regulator questioning the valuation of the preferential allotment. PNB Housing Finance’s board has arrived at a price of Rs 390 per share.

But Securities and Exchange Board of India, in its letter, said the company’s resolution to hold the EGM violates its Articles of Association. And that it should be acted upon. The regulator directed the company to undertake the valuation of shares as per the AoA—from an independent registered valuer.

This prompted PNB Housing Finance to approach SAT for relief since the EGM is scheduled for tomorrow.

In its arguments before SAT, PNB Housing Finance pointed to company law provisions to say that for listed companies, pricing for a preferential issue is determined by SEBI’s Issue of Capital and Disclosure Requirements regulations, which prescribe a market-linked price.

It argued before SAT that:

• SEBI’s direction is bad, erroneous and unsustainable in law since the company’s rights are being affected by it without any statutory basis.
• PNB Housing Finance was not given any opportunity to present its case.
• Companies (Share Capital and Debentures) Rules, 2014 say that a listed entity is not required to obtain a valuation report from a registered valuer for determining the price of the equity shares for a preferential allotment.
• The AoA cannot supersede the requirements laid down in the law.
• The company had in fact obtained a valuation report from two valuers, who made a determination as per pricing norms. The regulator has ignored this fact.

If the shareholder vote is pushed, it would jeopardise the company’s capital raising plans and the price will have to be recalculated. The revised price will then include within it the impact of the preferential allotment announcement, which may make the offer commercial unviable for investors.

Securities law experts told BloombergQuint that the regulator’s concerns are arising from the company’s AoA. Since the AoA requires appointment of a registered valuer, the regulator’s ask is that the higher of the two- valuer determined price or price as per preferential allotment rules - be considered as the floor price.

One lawyer, on the condition of anonymity as the case is pending before the SAT, attributed this situation to “poor secretarial practice” of not amending AoAs once the company get listed. Most unlisted companies have a requirement of independent registered valuer in their articles, this lawyer explained.

PNB Housing Finance’s capital raising plans via preferential allotment now hinge one one legal question—if a company has set a higher bar for itself in its AoA compared to what the regulations require, what should prevail?

The appellate tribunal is likely to answer this when the matter comes up for hearing on July 5. SAT has asked PNB Housing Finance to direct NSDL, who is in charge of e-voting, to not to reveal the results and keep the same in a sealed cover.